Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of
MR. JUSTICE WARD DELIVERED THE OPINION OF THE COURT:
The plaintiffs, Bruce H. Dodds and Douglas W. Dodds, filed a complaint in the circuit court of Cook County to "cancel" an agreement with the defendant, Peter D. Giachini, granting the latter an option to purchase stock from the plaintiffs. The defendant filed a counterclaim seeking specific performance of the agreement. After a trial without a jury, judgment was entered in favor of the plaintiffs on their complaint, and the counterclaim was dismissed. The appellate court reversed (79 Ill. App.3d 358), and we allowed the plaintiffs' petition for leave to appeal under Rule 315 (73 Ill.2d R. 315).
Disposition of the complaint and of the counterclaim turn on the same issues. An understanding of the latter requires an account of the circumstances leading to the execution of the agreement, dated May 7, 1976, and the conduct of the parties thereafter prior to the filing of the complaint on September 29, 1977. The case was tried on a stipulation that recitals of certain facts made therein were true, and that various pieces of correspondence between the parties which were admitted as exhibits were sent and received on the dates indicated by the persons shown as the senders and addressees. The defendant also testified on his own behalf, but his testimony did not figure in the decisions below. The stipulation does not represent that no communications, meetings, or conversations concerning the agreement took place between the parties other than those included in the stipulation and the exhibits, and the exhibits themselves show that that is not the case, since several of them refer to other communications of which no evidence was introduced.
In 1970 Bruce H. Dodds and Douglas W. Dodds, his father, the plaintiffs, organized the Tollway Arlington National Bank, which was located in Arlington Heights, a suburb of Chicago. They controlled over 51% of the 3,000 shares of the bank's stock that was outstanding. The elder Dodds was then a director of six other banks, and had been engaged in the banking business since 1930. In 1974 the plaintiffs became the beneficial owners of a parcel of real estate in Arlington Heights, which was at that time improved with a partially completed office building.
In October 1975 the bank moved into the building, occupying the entire first floor and one-half of the basement. No formal lease was executed at that time, but the bank was occupying the premises at a monthly rental of $7,900, a figure which was calculated on the basis of a specified charge per square foot of space occupied.
At least as early as November 1975 the bank was having discussions with the regional administrator of national banks for the Chicago area, whose office is part of the Federal Bureau of the Comptroller of the Currency. Correspondence between the bank and the administrator shows that the latter was concerned that the rentals being paid were excessive in relation to the bank's income, and that this disproportion might lead to a net operating loss. When a lease was drawn for the bank, to become effective May 1, 1976, the monthly rental, at the administrator's suggestion, was reduced to $5,100.
In 1975 and 1976 the plaintiffs were engaged in completing the building. In the spring of 1976 they concluded that additional funds were required for this purpose, and they entered into negotiations with the defendant, who was then the president of the Maywood-Proviso State Bank, which was located in Maywood, another Chicago suburb. The defendant had held this position for 24 years.
These negotiations culminated in a written agreement dated May 7, 1976, which is the subject of this action. The defendant was to lend the plaintiffs $450,000 for a period of eight months at 8 3/4% interest, payable monthly, and he was given an option, to be exercised in eight months, to purchase from the plaintiffs an amount of the bank's stock sufficient to give him majority control. These shares were to be held by the defendant in the meantime as collateral security for the loan. The plaintiffs further agreed to grant the bank a five-year lease of space in their building at $5,100 per month, with optional renewals for seven successive periods. The bank was not a party to the agreement. Since the construction of the agreement is in dispute, its pertinent provisions are set forth below:
"1. LOAN. Purchaser [the defendant] agrees to loan to Sellers [the plaintiffs] the sum of $450,000 for a period of 8 months at 8 3/4% interest. It is agreed by the parties that 1583 shares approximately, but not less than 51% of all outstanding shares will be placed with Purchaser as collateral security for said loan. It is agreed that interest will be payable each month with the exception that at maturity any interest then due shall be paid by Sellers together with the principal which then remains unpaid.
2. OPTION TO PURCHASE CONTROLLING INTEREST IN TOLLWAY ARLINGTON NATIONAL BANK. Sellers represent that they own or control 1583 shares representing approximately 53% of the outstanding stock of said Bank and hereby grant to Purchaser an unrestricted option to purchase such shares at $300 per share. The option shall be effective on this date and shall remain effective for a period of 8 months, from the date hereof and in the event that the option is not exercised, then the stock pledged as collateral will be returned to Sellers upon payment by Sellers of the then outstanding loan balance.
3. LEASE TO BANK. Bruce Dodds represents that he is the owner of the beneficial interest in the trust holding title to a building commonly known as the Tollway Arlington National Bank building located at the Tollway and Arlington Heights Road. Bruce Dodds also represents that the $450,000 being borrowed from Purchaser will be used as follows:
$250,000 will be paid to Harris Trust and Savings Bank
$200,000 will be used to complete the building.
Sellers agree to grant to the Bank a lease for a 5 year term with 7 options for renewal at a rental acceptable to the Comptroller of the Currency of the United States and also acceptable to Purchaser. Rental for the first 5 years is to be $5100 per month. The rental shall increase as the deposits increase. When deposits reach $20,000,000 the rent shall increase to $5723.00 per month. Thereafter with each $5,000,000 increase the rent shall increase $311.50.
b. * * * Delivery of the Bank shares to the Purchaser in accordance with this agreement will on exercise of the option vest title to 53% of the issued and outstanding shares of capital stock of the Bank in the Purchaser free and clear of all liens, encumbrances, claims of every kind. Purchaser agrees to purchase up to 100% of the shares if so desired by Sellers at the same price of $300 per share.
c. Sellers agree to repurchase on exercise of the option any loans in default or any loans listed as substandard by the Comptroller of the Currency in its regular examination of the Bank.
g. In the event of exercise of the option, PETER D. GIACHINI may use the note signed by BRUCE DODDS and DOUGLAS DODDS ...